A brand new FICO credit scoring model will be used in the summer of 2020. These credit changes will affect millions of home buyers.
Every 5 years or so FICO rebuilds their score model. This new scoring model will look at your credit history for the last 24 months, whereas the current model only looks at the last 1-2 months.
It will also look at things such as personal loans for those that have consolidated old credit card debt into a personal loan and subsequently opened a new card.
Anybody that has taken out a personal loan to consolidate debt or who has carried high balances on credit cards, made late payments etc. will be negatively impacted by the new scoring model by as much as 20 points.
What is a FICO Score?
A FICO score is a number that lenders use to determine how likely you are to repay a loan based on your credit history. This number affects how much money you can borrow, how many months you will have to pay on it and how much it will cost you based on your qualifying interest rate.
A FICO score is important because it can help you gain access to credit for things you might need such as paying medical expenses, getting an education, or buying a home.
Having a good credit score can save you thousands of dollars in interest and fees because lenders are more likely to offer better rates if you present a lower risk to them.
Why does a credit score matter when buying a home?
Mortgage loans are based on credit risk. Generally speaking, a higher score results in a lower rate. The difference in interest rate could save you thousands of dollars over the life of your home loan.
Higher Credit = Lower Rates
Conventional home loans are the most credit dependent. A lower credit score will result in higher interest rates and higher private mortgage insurance (PMI).
Many government insured home loans such as FHA Loans, VA Loans and USDA Rural Development loans are not as credit sensitive. You may still qualify for a great low rate without the highest credit scores.
Who will be affected by the new FICO 10 score model?
The new scoring model will affect around 110 million consumers later this summer when it is put into effect.
For anyone with scores around 600 or below, it could fluctuate your score negatively around 20 points. Alternatively, for those with score of 680 or above, your score could go up around 20 points.
The additional data the new scoring model will use will help to provide better accuracy for credit scores.
How to improve your credit score
Although the new scoring model will affect millions of consumers- the 3 general principles to maintain good credit remain the same:
- Always pay all of your bills on time
- Keep your credit card balances well below their limits
- Don’t apply for credit too often
Take Advantage of High Credit Scores
If you are confident of your credit score, then now may be a great time to take advantage of your hard work by qualifying for a low mortgage rate.
Mortgage rates are near historic lows. A high credit score could save you thousands by refinancing to a low rate or it could help first time homebuyers qualify to borrower more for the same cost.
To get a rate quote, give us a call at 800-555-2098 or request information below.